Analyst projects 9.2 percent reduction in cotton acres

U.S. cotton producers are expected to plant almost 10 percent fewer acres in 2007, one of two factors that should lead to higher prices, according to an analyst speaking at the 2007 Beltwide Cotton Conferences in New Orleans.

Jarral Neeper, Calcot, Ltd., Bakersfield, Calif., says the largest regional reduction in acreage is expected to come in the Mid-South where cotton producers are expected to make significant shifts in acreage to corn, which is currently in the middle of a bull market.

Neeper projects planted acreage for 2007 in the United States at 13.9 million acres, down 9.2 percent from 2005. That includes a 16 percent decline in the Mid-South, a 6 percent decline in the Southeast and a small decline in Texas and Oklahoma.

“In the Far West, we’re going to continue to lose upland acres, some of which will be offset by an increase in Pima acreage.”

Production is expected to come in around 20.3 million bales, down 950,000 bales from last year’s crop, Neeper says. “The Mid-South, with the largest decline in acreage, is expected to have the largest decline in production.”

Neeper assumes an average national cotton yield of 763 pounds, which is down from last year, “but if there is less abandonment in Texas, that should work the average down a little bit. It wouldn’t be unheard of to be around 800 pounds, so production could range as high as 21.7 million bales.”

Total U.S. supplies will still be in excess of 25 million bales, “which means we’re going to continue to have to export cotton to work supplies off the market. I don’t think we’ll get rid of as much cotton as USDA is suggesting. As of last week the export sales report was running about 4.1 million bales below that of a year ago.

“I’m not saying we can’t get to a 16-million bale export number (for 2006-07), but to do that, we would have to sell more cotton that we’ve ever sold between now and the end of the crop year.”

Neeper pegs total U.S. offtake at 20 million bales. “And next year (2007-08), I’m looking for an increase in exports to 17 million bales. That will be the fourth consecutive year of total U.S. offtake in excess of 20 million bales or more.

“World production will remain essentially unchanged at 116 million bales, even with a decline (2 percent) in overall area. World economic growth is the biggest driver in world consumption and we would expect to see another 1 percent to 2 percent increase there.

“If there are any worries out there, it would be due to worries that the United States might go into an economic slowdown, if not an economic recession.”

Another thing to keep an eye on are exportable supplies, according to Neeper. “If you compare the December and November world production/consumption numbers, there really hasn’t been much change since August. But that doesn’t mean that things haven’t been happening.

“Projected Chinese production has increased by 3 million bales over that time period and U.S. production is up a million bales. On the other side, Australia’s production is down to 1.3 million bales, and is expected to fall even further. Production has also fallen in Pakistan, Syria and Greece.

“Projected Chinese consumption has been reduced by a million bales, and increased in India by a million bales. Domestic use in the United States continues to contract. We started out with 5.5 million bales and now we’re down to 5.1 million bales and probably could drift a little lower before the year is out.

“As these changes have taken place over the course of the crop year, exportable surpluses in all foreign countries except China had decreased. One reason why we’ve had relatively poor prices the last three or four years had been a huge jump in exportable surpluses. Much of that has come from India.”

Neeper noted that in 2003, India produced 13 million bales of cotton and consumed 12 million. “In 2004, with the help of Bt technology, they go to 19 million bales of production and they weren’t able to increase consumption. This year, consumption is narrowing the gap. We believe that consumption will eventually catch up and we should see that exportable surplus continue to decline.

“With tightening supplies of cotton, prices should go a little higher. And I believe a lot of this friendliness is going to come because of what is expected to happen in the 2007 crop year.

“Prices will tend to respond a little slower than normal. I think we will work our way to higher prices, around the high 50s for the next couple of months until we get a better picture of how many acres are going to go from cotton into the grains.

“My target for the December 2007 contract is right around 70 cents a pound. I don’t know if it’s going to happen in April or September, but I do believe it will happen in the next 12 months.

“But we do have a lot of pressure at the wholesale and retail level which are squeezing margins along the entire line. If you hear one complaint out of a textile mill, it’s that people aren’t willing to pay more for anything versus a year ago.”